State regulators approved a deal with national lending giant Household International that provided only limited relief to consumers because they believed those consumers might face foreclosure or bankruptcy if they dragged the company through the courts.

That is the picture that emerges from newly released records from the office of Washington Attorney General Christine Gregoire. The records consist of e-mails and other documents that trace the intense bargaining process that resulted in 2002's $484 million nationwide settlement of predatory lending claims against Household. About 11,000 Washingtonians who got real estate-backed loans from Jan. 1, 1999 to Sept. 30, 2002 were eligible for a share, including about 400 in Whatcom County.

Household never admitted wrongdoing. In court documents and in statements to reporters, company spokesmen blamed much of the controversy on the Bellingham office, where they said loan officers used unauthorized sales techniques.

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Kathleen Rizzo Young, first vice president for group public affairs at HSBC, which now owns Household, declined a request to comment for this article.

On the surface, the record-breaking price tag looked like a victory for consumers and Gregoire. But Gregoire and the state officials closest to the case freely admitted, even as they announced the deal in a Bellingham press conference, that the money would pay only a fraction of the losses that many Household customers suffered, which were roughly estimated to be in the billions nationwide.

At the time of the settlement, Household had about $100 billion in outstanding loans, according to state estimates.

The deal also required borrowers to give up their right to sue Household for any additional damages, if they wanted their share of the settlement money.

Besides the restitution paid to consumers, the company also paid the states' legal, investigatory and administrative costs in pursuing the case and parceling out the settlement money. That amounted to an additional $1 million for Washington state, an amount that officials believed was equivalent to the state's costs in the matter.

The terms of the settlement got a mixed reception from the homeowners it was meant to help.

Jeanie Luna of Blaine, who had first complained to state officials about her mortgage deal with Household, said at the time that she was glad to see state officials acknowledge that Household's business practices, as outlined in settlement documents, were not acceptable. But she said she didn't think the settlement went far enough.

"If that's it, I'm not happy," Luna told reporters after Gregoire's Oct. 11, 2002, press conference in Bellingham. "There's too many laws that have been broken. ¼ I think more people in that company need to be held accountable. There's people who broke the law. It has to be more than just paying out money."

Luna and many others told similar stories: After going to Household to refinance high-interest credit-card debt, they wound up paying thousands of dollars in loan fees and insurance premiums while being saddled with high-interest mortgage loans, after they relied on sales pitches that had promised them big savings.

Washington's Household customers got checks for their share of the state's $21 million portion of the settlement in December 2003, more than a year after Gregoire announced the deal.

Those who got their loans in Bellingham were more fortunate than most. A private lawsuit argued by Wenatchee attorney Robert Parlette eventually got the company to agree to lower interest rates and partial refunds of hefty loan fees. Settlement checks in that case have been reaching local homeowners during the past few weeks.

The newly released documents were made available after Household tried to keep the them under wraps but lost a court battle for their release initiated by The Bellingham Herald, The Seattle Times and the Inner City Press of New York City.

E-mails exchanged among Washington regulators and state officials elsewhere indicate that less than a month before the final settlement was announced, a group that included Washington and 19 other states asked Household to pay $500 million to consumers in those 20 states - and proportionately more if other states joined in the deal. That was the deal the states offered Household on Sept. 17, 2002, according to e-mails sent to Gregoire and others by Paul Silver, former head of the consumer protection division under Gregoire.

State regulators across the country believed that even that amount would not add up to full restitution for consumers. The case files contain an analysis from Minnesota investigator Daniel Gallatin estimating that full restitution for consumers in just 17 states would be about $1.2 billion.

The documents show that the winding road that led to the settlement began early in 2002, after lawyers in consumer protection enforcement agencies around the nation realized they were hearing similar complaints from their borrowers alleging misleading lending practices by Household.

In a recent interview, a Minnesota regulator said his state got nowhere when it attempted to negotiate individually with Household. But when an initial group of more than a dozen states formed to address the case, they got the company's attention, said Scott Borchert, enforcement supervisor with the Minnesota Department of Commerce.

Even after the states joined forces, early contacts between state regulators and Household were less than productive, according to the records. The initial negotiating session between the company and the multistate working group resulted in "little more than accusations and denials," according to a summary in the files that was prepared for Gregoire.

The company's preliminary response to consumer complaints and the negative publicity they generated was to issue a series of press releases touting the company's safeguards to protect its customers.

The attorney general's staffers circulated those press releases by e-mail, with derisive comments.

"Do we laugh?" state investigator Jan Simonds said in one such e-mail.

"Only to keep from crying," Assistant Attorney General Huey replied.

On Aug. 14, 2002, Huey sent Household's then-general counsel Kathleen Curtin a letter warning that unless Household worked out a satisfactory settlement of complaints by Sept. 30, many state regulators would go to court to begin filing consumer-protection lawsuits and injunctions against the company.

On what he said were clear directions from Gregoire, Huey pressed the company for a settlement, instead of fighting it out in the courtroom.

"She didn't want this thing to be a five-year case," Huey said in a recent interview. "She said, 'These people (consumers) are hurting and we want to get them some relief as quickly as we can."

Staffing was also an issue, Huey said. After a round of budget cuts, the consumer projection division of Gregoire's office was down to just six attorneys in 2002, he said in the interview.

By September, communications between company attorneys and attorneys in Gregoire's office indicate that the company was now willing to discuss some kind of multimillion-dollar settlement.

By Sept. 24, Household was offering $370 million, spread over four years, and saying that anything more could ruin the company. The states were asking for $500 million immediately.

On Sept. 30, representatives from the states went to Chicago for what they hoped would be the final meeting with company officials, and Gregoire and other top officials from other states joined the negotiating in person for the first time.

They offered Household a $531 million settlement for all 50 states. Household countered the next day with an offer of $437 million. Household's attorneys also insisted that consumers who got a share of the settlement would have to renounce any other claims in order to get their share of the deal.

In a recent interview, Huey acknowledged that the condition was unusual. But when the company agreed to a $484 million deal, the states conceded the point and agreed to give Household the full liability release from any consumer who agreed to take a share of the money.

"My recollection is, that was one of the last things that we caved on, after they came close to our half-billion-dollar restitution target," Huey said

Huey said he and the attorneys from other states did not think it likely that consumers would get a substantially better deal by pursuing their own claims in court or by participating in a class action case.

Assistant Arizona Attorney General Sandra Kane agreed, although she said the deal was not everything the state attorneys had hoped to accomplish.

"There's always anguish," Kane said. "I think we all felt we had worked out a good compromise."

Household International survived its legal ordeal. The company's stock climbed 25 percent when news of the deal leaked out on Oct. 10, 2002, the day before the states announced it. The stock rose an additional 6 percent the next day when the deal was confirmed. Investors apparently believed the deal was a good one for the company.

The following month, one of the world's largest international banks, HSBC, announced it was buying Household for $14.2 billion.

Today, Huey said, Household's loan practices are being monitored under the terms of the settlement, and the company appears to be complying with a long list of improved consumer-protection practices it agreed to as part of the 2002 deal.

Household International continues to operate its Household Finance Co. branch office in Sunset Square. Melissa Rutland Drury, who was branch manager at the time of the alleged loan abuses, was fired by the company in May 2002 after company officials blamed her for the problems. About two years later, Drury filed a wrongful discharge and defamation suit against the company in U.S. District Court, claiming she had followed company policy during her tenure and was being made a scapegoat.